Entrepreneurship and Innovation Summary PDF

Unit 1: Entrepreneurship 1.1 Defining Entrepreneurship Definition of Entrepreneurship: Entrepreneurship This word is derived from entreprendre, meaning “to undertake something” or “to take something in one’s own hands”. 1- Individual mindset: positive fundamental attitude regarding entrepreneuri...

Unit 1: Entrepreneurship 1.1 Defining Entrepreneurship Definition of Entrepreneurship: Entrepreneurship This word is derived from entreprendre, meaning “to undertake something” or “to take something in one’s own hands”. 1- Individual mindset: positive fundamental attitude regarding entrepreneurial concerns. 2- Academic discipline: about the “science of the entrepreneur” 3- Process: identify, validate, and use entrepreneurial opportunities and develop innovations. Historical perspective: (1980s - Today): Traditional measure of entrepreneurship: Since the 1980s, it's often measured by the number or share of small- and medium-sized enterprises (SMEs). (Economic outcomes and sizes of enterprises) SMEs in the EU: Represent 99% of all businesses and contribute significantly to GDP and job creation (employing around 100 million people). Limitations of SMEs as a measure of entrepreneurship: - Firm size definitions are not universally applicable. - Not all small firms are entrepreneurial. - Many SMEs include part-time, hobby, or sideline businesses that are not innovative or growth driven. Conclusion: SMEs are not always representative of true entrepreneurial activity. Business Ownership: Common measure of entrepreneurship: Being self-employed or owning a business. Entrepreneurial characteristic: Both self-employed and business owners are risk-takers, a key trait of entrepreneurship. Limitations of this view: - It is one-dimensional and does not fully capture entrepreneurship. - Many self-employed individuals may not seek new opportunities or develop innovations. Conclusion: Self-employment and business ownership are not synonymous with entrepreneurship, as they lack the essential elements of venture creation and innovation. Entrepreneurial Opportunities and Venture Creation: A popular definition of an entrepreneur is “someone who perceives an opportunity and creates an organization to pursue it” Venture creation includes the following main steps:  1. Identify 2. Validate 3. Exploit Entrepreneurial opportunity characteristics: - Involves value creation through recombination of existing resources. - Creates something new, which can be a product, solution, technology, or market. - Involves personal risk for the entrepreneur. - Can be exploited by a start-up or an existing company, regardless of organizational form. - Caused by changes in four factors: o technological o political and regulatory o demographic o individual Entrepreneurship addresses the following research questions: 1. Why, when, and how: a. opportunities for the creation of goods and services come into existence. b. some people and not others discover and exploit these opportunities. c. different modes of action are used to exploit entrepreneurial opportunities. A crucial part of this approach is that it is based on the combination of two key elements: the presence and identification of opportunities with economic value, and the presence of individuals with entrepreneurial skills. Innovation: ECONOMIC CYCLE: Joseph Schumpeter: an Austrian economist, was the first to theorize about entrepreneurship. The “creative destruction” initiated by an entrepreneur destroys the market equilibrium and starts a new cycle of economic development. Peter Drucker: “entrepreneurs innovate”.. “innovation matters—but it doesn’t happen automatically. It is driven by entrepreneurship […] which enables good ideas to become reality. The power behind changing products, processes and services comes from individuals […] who make innovation happen” Entrepreneurship involves the nexus of two phenomena: the presence of lucrative opportunities and innovations, and the presence of enterprising individuals who exploit them on the market. 1.2 Benefits of Entrepreneurial Activity Macroeconomic Effects of Entrepreneurship: country or economic perspective: - Wealth-based and growth effects (Kondratieff cycles: describe economic cycles in durations of decades) - Technology-based and innovation-based effects - Knowledge-based effects - Employment effect Microeconomic Effects of Entrepreneurship: individual perspective or the role of the entrepreneur: - Risk-bearers / Risk-takers - Arbitrageurs (Monopoly profit seekers through comparison of price differences between products and services) - Innovators - Coordinators of resources (Factors of production) 1.3 Types of Entrepreneurs “Entrepreneurship can be undertaken by a single individual or a set of people who undertake the steps of the process collectively or independently.” - Habitual/Multiple: runs more than one business - Serial: runs businesses sequentially - Portfolio: runs businesses simultaneously Innovation degree: - “Innovative entrepreneurs” : new products, services, technologies, and business models to the market, as well as introduce new processes, marketing techniques, and business structures. - “Replicative entrepreneurs” : existing markets with existing products, services, and/or business models using unique selling propositions (majority of all SMEs and self-employed entrepreneurs) Opportunity vs necessity: - Opportunity entrepreneurs: pursue an entrepreneurial opportunity after spotting it on the marketplace, even though attractive alternative ways of earning a living are open to them  - Necessity entrepreneurs: pushed into self-employment and entrepreneurship because they face no better alternative on the market, “self-employed out of unemployment”. Specific Types of Entrepreneurs: - Intrapreneur: working in ‘corporate entrepreneurship’ or ‘corporate venture’ departments - Social entrepreneur: meet social needs and create value for society. - Sustainable entrepreneur: new business, organization, or other enterprise with the intention to make the world more sustainable and/or tackle major issues related to the climate crisis, relate their work to the United Nations 17 Sustainable Development Goals (SDGs). - Digital entrepreneur: new digital ventures or digitally transforms existing businesses by using (new) digital technologies and/or new applications of such technologies. - Technology entrepreneur: new ventures or transforms existing businesses using new high- tech solutions (including hardware components) and/or new applications of high-tech. Entrepreneurs Distinguished by Time and Duration: TEA (Total early-stage entrepreneurial activity rate = Nascent + New + Established), according to GEM (Global Entrepreneurship Monitor) - Nascent entrepreneur: planning or business running > 3 months - New business owner: < 3 months and > 42 months - Established business owner (EBOs): < 42 months 1.4 Global Trends in Entrepreneurship Global Entrepreneurship Monitor (GEM): 1- Survey the adult population in the participating country 2- Collect data on the national context, regulatory framework, fostering, and limiting fac tors of the entrepreneurial situation in different countries Global Entrepreneurial Activities: TEA vs. EBO rate: the proportion of adults starting and running a business exceeds that of those owning established businesses The Entrepreneurial Context: Factors needed for future improvement, i.e., more policy attention and support measures for fostering a country’s entrepreneurship, include entrepreneurship education at school, research and development (R&D) transfers, and government policies relating to taxes and bureaucratic burdens for entrepreneurs. Global Student Entrepreneurship: Global University Entrepreneurial Spirit Students’ Survey (GUESS), covering the development of global student entrepreneurship. The survey covers the intentions of students to pursue entrepreneurial careers, their underlying drivers, and their entrepreneurial activities. Fostering characteristics of their entrepreneurial activities is supported by: - entrepreneurial climate and entrepreneurship education of their university. - entrepreneurial parents, who foster entrepreneurial intentions and activities. - student workers, who have higher own entrepreneurial intentions and activities. Majority of the students follow the motto “first employee, then entrepreneur.” Unit 2: The Entrepreneur 2.1 Defining Entrepreneur Entrepreneurship: link between the person and an opportunity. Entrepreneurs decide to implement an opportunity if they perceive a high chance of success. If there is potential to compensate for the opportunity costs (i.e., lost profit contributions) of foregone alternatives, the project is attractive from the entrepreneurial point of view. The Definition of an Entrepreneur: An Approximation: - The French word entrepreneur has been used in its current meaning, describing “someone who undertook any project that entailed risk—military, legal, or political, as well as economic”, and in business and academia to describe a person who starts a new kind of business or a new (or improved) way of doing business. Summarized definition of Entrepreneur in Five elements: 1- Starts and builds a new business based on an identified entrepreneurial activity, taking on high risk and uncertainty to make a profit. 2- Acts on their ideas, unlike most people with business ideas who do not start a business. 3- Spots opportunities and finds innovative solutions, undeterred by lack of resources. 4- Recognizes opportunities others may not notice or act on at the right time.  5- Acts as a disruptor, catalyst, and innovator, changing the status quo by creating new ways of doing things (creative destruction) 2.2 Characteristics of Entrepreneurs Entrepreneurial set of ten characteristics (entrepreneurial mindset / spirit): 1- Determination and Passion 2- Product and Customer Focus 3- Execution Intelligence 4- Desire for Responsibility 5- Preference for Moderate Risk: calculated risk based on their passion, know-how, etc. 6- Willingness to Break the Rules 7- Self-Reliance, Self-Efficacy, and the Confidence to Succeed 8- Future Orientation 9- Creativity 10- Tenacity in Response to Failure * Entrepreneurial skills and the respective mindset can definitely be taught and learned. No one is “born” to be an entrepreneur; everybody has the potential to be entrepreneurial 2.3 Entrepreneurial Motivation and Behavior Primary motivations for becoming an Entrepreneur: - Autonomy - Pursue Their Own Ideas - Pursue Financial Rewards - Make a Difference Potential Drawbacks for Entrepreneurs: - Uncertainty of income and earning a living - Risk of losing investment in business - Discouragement - Strain on personal relationships Entrepreneurial Behavior: Opportunity Seeking: There are five fundamental opportunities: 1- new technology - new product 2- existing technology - new product 3- existing technology - old product in a new way 4- Finding a new supply of resources 5- new market - existing product In the beginning, an entrepreneur has to recognize and identify opportunities, which is known as training the entrepreneurial instincts, the three essential steps for this process are as follows: 1- listen 2- observe 3- analyze Opportunity Creation versus Discovery: - Schumpeter (1947) argued that opportunities only arise through an active process that disturbs, or even destroys, existing equilibria (the “creation” approach). In this approach, the entrepreneur creates completely new experiences, knowledge, and information under certain circumstances. - In contrast, Kirzner (1973) argued that the entrepreneur discovers existing opportunities through awareness (the “discovery” approach) Causation, Effectuation, and Bricolage: Introduced by Sarasvathy (2001), effectuation and causation are distinguished as two alternative decision-making approaches to venture creation. Both approaches can occur simultaneously and can be used sequentially or complementarily since they are seen as “integral parts of human reasoning”. - Causation approach: causation processes take a particular effect as given and focus on selecting between means to create that effect. - Effectuation approach: effectual thinkers are like explorers setting out on voyages into uncharted waters, Entrepreneurs are similar to adventurers and explorers in that they set goals, adapting them if the conditions, circumstances, or the environments change o Guiding principles in the process include: ▪ “bird in the hand” principle. Something new is created only with existing possibilities; no new paths are taken.  ▪ “affordable loss” principle. The alignment is done according to what one is willing to lose instead of calculating possible returns. ▪ “crazy quilt” principle. Negotiations are held with those who are willing to make real contributions. Only the goals and values of the company determine who “comes on board”. ▪ “lemonade” principle. Unexpected coincidences and circumstances are acknowledged and actively used instead of being reactive. ▪ “pilot in the plane” principle. Entrepreneurs know their actions will succeed in the desired outcomes if they focus on entrepreneurial activities within their control. An effectual worldview is rooted in the belief that the future is neither found nor predicted, but rather made. Therefore, effectuation is means-driven, sets the focus on the affordable losses (not the potential financial return), builds strategic partnerships as one key activity, and embraces the unexpected - Bricolage: the application of different combinations of (scarce or given) resources to new problems and opportunities, This view provides a complementary perspective to the effectuation approach, especially if an entrepreneur is acting with limited resources. o Bootstrapping, a strategy that involves conserving money and cutting costs during start-up so that entrepreneurs can pour every available funding into their businesses. Unit 3: The Entrepreneurial Process 3.1 Stages of the Entrepreneurial Process The Start-Up Development Stages: ▪ Early stage: o Seed stage: Feasible? Desirable (USP)? Profitable? o Start-up stage: greatest challenge for entrepreneurs is selling products or services to the first real customers and delivering the solution in quantity and quality. ▪ First stage: consolidation and establishment of the new venture is the focus, particularly in respect to increasing sales and marketing activities. Then the search for financing and investments ▪ Growth stage: entrepreneur turns their priority toward scaling up sales, ▪ Mature/Exit stage: o Mature: product, business model development, and organizational structures mature gaining a significant market share. o Exit: founders and shareholders of the start-up sell to investors or other companies. The Seed and Start-Up Stage: Processes and Entrepreneurial Methods: “a startup is a human institution designed to create a new product or service under conditions of extreme uncertainty” Different view on the start-up early-stage pha.se is to distinguish its three stages: 1- Problem/solution fit: entrepreneur decides whether the identified problem is worth solving 2- Product/market fit: build a product for the market and measure how well the product satisfies the demand 3- Scaling/growth: product/market fit is achieved; the business is ready to scale up sales. Design-thinking: - Tim Brown (2008), CEO of the Innovation Design Engineering Organization (IDEO) (a US based leading innovation consultancy), defines design thinking as “a discipline that uses the designer’s sensibility and methods to match people’s needs with what is technologically feasible and what a viable business strategy can convert into customer value and market opportunity” - Design thinking always starts with the customer problem and human needs, which must be observed, understood, and defined. - This discipline uses design methods and technologies to create customer value for the customer problem being analyzed - Another important principle of design thinking is testing the created solution with users as early as possible. This customer-centric perspective and view is one of the leading success factors of design thinking The following Five processes can be conducted sequentially, or several times separately, during the entrepreneurial journey: 1- Empathize 2- Define 3- Ideate 4- Prototype 5- Test Lean Start-Up: Ries (2011) developed and defined the lean start-up method as the driver of a start-up development. Tool: A steering wheel called the Build-Measure-Learn feedback loop. “Build product, Measure data, Learn ideas” * Each loop starts with several ideas or hypotheses that are used in the build stage to create a prototype or minimum viable product (MVP), MVP is the smallest group of features that will work as a stand-alone product while still solving at least the (core) problem and demonstrating the product value. 3.2 Venture Creation Venture creation is seen by academics and researchers as a complex task and an intricate process for the entrepreneur. When building the structure of the venture, the leading questions to be answered by the entrepreneur are as follows: - How much capital is needed to start the business? - How much control and ownership do I want? - How much risk am I willing to take on, in the case of failure? - What is the registration, reporting, and tax implications? Criteria to choose legal firm: - legal form customary in the industry - liability, risk distribution, and creditworthiness - capital investment and asset protection - management authority, control, and supervision rights - formation costs and ongoing expenses - tax burden - legal requirements and trade law requirements - business volume The three basic options of a new venture’s legal entity are sole proprietorship, partnership, and corporation. (For characteristics and differences, refer to page 53, table 2) 3.3 Creativity Management and Time Pressure - Creativity: “the ability to develop new ideas and to discover new ways of looking at problems and opportunities” - Entrepreneurship is the result of a disciplined, systematic process of applying creativity and innovation to needs and opportunities in the marketplace. There are a variety of different techniques and methods, such as brainstorming and the headstand technique, The creativity methods have some common typical procedural patterns which include: 1- the collection of intuitive associations. 2- the variation of existing elements.  3- the transfer of the problem from one area to one or more other areas (formation of analogies). 4- the decomposition of the overall structure of the problem. 5- the alienation of the problem by combining it with elements from other fields. 6- a different way of looking at the problem. A creative process often serves as a guiding function, which presents itself as a sequence of the phases: 1- Recognition 2- Incubation 3- Insight 4- Validation or refinement In each step of the creativity process, it is important to use diverging and converging methods: - Converging or convergent thinking: similarities and the connections among various and often diverse data and events - Diverging or divergent thinking: see the differences among various data and events Timing: - A start-up could be far too early, a little bit too early, on time, a bit late, or far too late to market. The two extreme points are not conducive to success. - If the entrepreneur is too early with their product, the market is not ready for it, as the product does not fit the current habits and expectations of potential customers - Being too late is also a bad choice for a start-up. The market is already targeted by competitors who, in most cases, have already attracted a mass audience and significant market share. One option would be to get into the market using a cost and price leadership strategy, often called a late follower strategy. Each entrepreneur must observe the ongoing market conditions and trends to find the right timing for market entry of their innovative business idea Market entry in the market life cycle: One of the prerequisites that must be clarified before market entry is the objective, such as return on investment and security (liquidity, capital, and substance preservation). Unit 4: Innovation 4.1 Defining Innovation Innovation: From its linguistic root in Latin, in and novare, it means “to create something new”, (meaning of change). Innovation is a collective term for something new, improved, or changed. “Innovation from idea generation to problem-solving to commercialization is a sequence of organizational and individual behavior patterns connected to formal resource allocation decision points” “An innovation is an idea, practice, or object that is perceived as new by an individual or other unit of adoption” “Innovation is […] the process of matching the problems […] of systems with solutions which are new […]” “the successful exploitation of new ideas” These definitions emphasize novelty, newness, and change. Invention and innovation are closely related concepts but have distinct differences: Invention refers to the creation of a new idea, product, or process for the first time. It's a novel concept or discovery that hasn't been developed before. Invention is in the initial stage, focusing on the technical and conceptual aspects of something new, without yet considering its market viability. Innovation goes beyond invention. It involves not just creating something new but also applying, improving, and commercializing the invention. Innovation is about introducing the invention to the market and achieving economic success by exploiting it. It involves the economic optimization of the invention and its market diffusion through new products or processes that create value. As described, invention is seen as a preliminary step, while innovation includes the successful implementation and economic exploitation of that invention. Innovation is essentially invention brought to life in a way that achieves business success. Dimensions of innovation: 1- Content dimension (What is new?) a. Product innovation represents new or significantly changed things (products and services) offered by the company that the customers see as useful and choose to purchase. Product innovations must first be established on the market and aim to be. b. Process innovations are made in the production processes through new combinations of factors. A good is produced more cost-effectively, safer, faster, and may be more environ mentally friendly. Process innovations are internal and aimed at increasing efficiency. 2- Intensity dimension (How new is new?) a. Degree of novelty 3- Subjective dimension (New for whom?) a. Different target groups. 4- Actor dimension (New by whom?) a. Open innovation is the integration of external stakeholders into the innovation process 5- Process dimension (Where does innovation begin, and where does it end?) a. Idea generation b. Accepting ideas c. Idea realization Seven steps of the innovation management process: 1- Identify an object or area that is not yet well understood. 2- Conduct a detailed examination of the object. 3- Build a theoretical foundation or perform an empirical study to understand causes, effects, and relationships. 4- Publish the invention, detailing its features and properties. 5- Develop constructions, test facilities, and prototypes. 6- Begin market exploitation, converting the invention into a product or process offered commercially. 7- Continue with ongoing exploitation until innovation management is integrated into daily business routine. 4.2 Innovation Life Cycle Innovation life cycle / Product life cycle: used at the beginning of innovation development or for the evaluation of the state of the product on the market, based on a previous innovation. The life cycle starts with an idea (usually a product) or the first design and development and ends after a few years with the rejection of the product from the market. Innovation/Product life cycle: 1- Research and Development 2- Introduction 3- Growth 4- Maturity 5- Decline 4.3 Sources of Innovation Innovation management: all activities of the value creation process, up to the control of the market cycle of a new product. Planning, organization, coordination, and controlling of innovation Sources of Innovation: Innovations can emerge from either spontaneous genius or through systematic development and refinement of ideas, managed through innovation management Push vs. Pull Innovation: - Push innovations: Driven by new technologies (R&D), seeking markets or applications (e.g., pharmaceutical industry). - Pull innovations: Initiated by customer demand, often more successful due to market needs (e.g., Airbnb). Types of Innovation: - Incremental: Improvements to existing technologies or markets with low risk. - Radical: Revolutionary technologies introduced to new markets, higher risk. - Disruptive: New innovations that displace existing technologies by addressing unmet needs. User Innovation: Users innovate for themselves without manufacturers (e.g., pick-up truck, mountain bike). Lead users develop solutions early on, sometimes through co-creation (e.g., Linux, Firefox). Crowd Innovation: Companies engage users to generate ideas via online innovation communities, fostering open innovation. Internal Sources of Innovation: Employees, suppliers, and environmental factors (e.g., competition, demand trends) act as triggers for innovation. External Triggers: Crises or external shocks (economic, humanitarian, pandemic) can drive innovation to address emerging challenges. 4.4 Encouraging Entrepreneurship and Innovation The organization and innovation culture show a high correlation, i.e., the two cannot be considered separately, but are mutually dependent Unit 5: Planning, Business Models, and Strategy 5.1 Business Plan Business plans are written by established companies that want to carry out an extensive project or venture and, more commonly, by founders who need support for their planned start-up. Reasons to write a business plan: 1- External funding, e.g., from a bank, business angels, investors, or public promotional programs. 2- Base the new venture on a sound planning of the business, including all necessary steps of building and implementing the new business model and establishing the company as a new organization. (this can be achieved without a business plan too by using tools such as entrepreneurial processes. Section 3.1) There are findings that a significant share of new ventures is successful (success is defined here as an initial public offering (IPO) or sale to another firm) without ever writing a business plan. Initial Public Offering (IPO): An IPO is the first sale of stocks or shares of a company to the public. A business plan is either a written document or a form of a slide deck aligned with respective financial calculations. Some founders use the “7Cs” to check their business plan, is the business plan: 1- Clear 2- Crisp 3- Concise 4- Consistent 5- Coherent 6- Credible 7- Convincing Established vs. start-up: Market position described for start-ups is a planned, i.e., future, one. In this respect, there is a high degree of uncertainty. The most common structure and elements of a business plan are the following: - cover page and table of contents - executive summary - problem description (background information and the problem statement) - solution (details of the product, service, or both) - market (assessment and description of the market, including the definition of the target - groups and customers (often shown as personas, validated via market research measures) - marketing and sales (strategy and plans for pricing, marketing, and sales for the solution for the defined target customers on the market) - strategy and competition (market entry strategy, entry barriers, and competitor analysis) - innovation and unique selling point (USP) (explanation of degree of innovation, unique selling proposition due to the competition and value proposition on the market) - team (the founder or the founding team and their expertise, experience, commitment, and network), - company structure (legal form, mission, and vision) - finance (income, liquidity and cash flow statements, projections for the next three operating years, break-even point). Due to the limited financing options of a start-up and the existential threat of illiquidity, cash flow management should have the highest priority. - funding and resources (outline of financial requirements [e.g., the investment or loan proposal], other resources needed to start the business) 5.2 Designing a Business Model The success of several start-up unicorns, such as Airbnb or SpaceX, was based on their business model innovation. Business model: describes the content, organization, structure, and management of the planned value creation of a company. The authors of the Business Model canvas, Osterwalder and Pigneur, explain that “a business model describes the rationale of how an organization creates, delivers, and captures value” Business model is divided into four components: 1- The customer 2- The value proposition a. One other perspective is to compare the customer’s expected costs and benefits depending on the duration and progress of the product’s life cycle. Based on this, it is possible to determine one’s own relative value position to the competition from the customer’s point of view, the “comparative customer value” 3- The value chain 4- The revenue model a. The revenue model includes how the company generates revenue. This encompasses all questions relating to revenue sources. The description of costs and revenues, and their influencing factors, leads to the determination of the profit. Questions, such as “make or buy,” lead to the analysis of cost drivers. Different sources of revenue (product sales, licensing, rentals, service fees, subscription fees, etc.) should be examined and compared with the existing rules in the industry **Other models add a fifth component: the spirit of the company (team and values). Developing a Business Model Using the Business Model Canvas: A key advantage of the Business Model Canvas is that it provides a shared language and common understanding among those developing and discussing a business model. Using the Canvas, the business model is developed and described using nine sections “that show the logic of how a company intends to make money”, These sections cover the four main business areas: target groups and customers, solution and offer, infrastructure, and financing. The right side represents the external perspective of the business model, while the left-hand side of the canvas is the internal perspective. It is recommended to start with the right-hand side. External view of the business model canvas: - The customer segments define the persons and organizations or companies that a company wants to reach and serve as their customers with its offering - The value proposition describes the benefit for customers resulting from the usage of the “total package” of products and services that the company offers. - The channels define how a company reaches and communicates with its customers to make them aware of the value proposition. This includes the selling activities of a company (in particular, the distribution and points of sale), as well as the communication with the customers  - A customer relationship is any type of relationship that a company business model needs to serve and address its specific customer groups - The revenue streams are the various ways of making money that arise in connection with the offer of the value proposition to the customers. Every business must ask itself from the outset which benefits a customer is willing to pay for. Internal view of the business model canvas: - The key resources describe the most important goods required so that a particular business model can function, which are key to offer the defined value proposition. - Four potential categories of key resources are distinguished by the model: o Physical resources, such as premises or production machinery o Intellectual resources, such as knowledge, patents, and partnerships o Human resources o Financial resources, such as available capital and collateral - The key activities describe the most important actions a company must take to successfully implement the business model and offer the defined value propositions. - The key activities describe the most important actions a company must take to successfully implement the business model and offer the defined value propositions. - The cost structure describes all costs that occur during the implementation of the business model, which must be included in the financial planning. These costs can be calculated by describing key resources, activities, and partnerships Five Business Model Patterns: - Unbundling: Companies split into three types of businesses: o Customer relationship o Product innovation  o Infrastructure Each type has distinct economic, competitive, and cultural demands. - Long-Tail: Focuses on selling a large number of niche products, each with lower sales volume. - Multi-Sided: Requires two or more customer groups to simultaneously engage for the value proposition to work. - Free Model: A significant customer segment continuously benefits from free services. - Open Innovation: Companies collaborate with external partners to create and capture value. ** A single business model may include several of these patterns simultaneously. Further Classification: The Business Model Navigator identifies 55 business models based on extensive research. 5.3 Developing a Business Strategy Strategic Planning in Start-Ups: - Follows business model validation and involves creating a vision, mission, and strategy. - It’s an ongoing process that evolves based on market feedback and business needs. - Business plans outline future strategies, similar to those of established companies. Key Steps in Strategic Planning: - Develop a long-term vision (3+ years) and define the company’s mission. - Set strategic objectives and translate them into operational goals with measurable outcomes. Flexibility in Start-Up Strategies: - Start-ups can quickly adapt strategies due to pivots, new insights, or market changes. SWOT Analysis: Identifies internal strengths and weaknesses, and external opportunities and threats. Strategies derived from SWOT include: 1- “Expand” (strengths + opportunities) 2- “Hedge” (strengths + risks) 3- “Catch up” (weaknesses + opportunities) 4- “Avoid” (weaknesses + risks) Strategic Directions: 1- Growth strategy: Expand company size and performance.  2- Stabilization strategy: Maintain current size. 3- Shrinking strategy: Controlled downsizing in response to market conditions. Competitive Advantage: Central to start-ups, focusing on creating value through price or product differentiation. Porter’s strategies include: 1- Cost leadership vs. differentiation. 2- Targeting total market vs. niche market. 3- Following existing rules vs. creating new industry rules. Dynamic Capabilities: - Competitive advantage increasingly relies on adaptability, innovation, and organizational flexibility. - These "dynamic capabilities" allow companies to respond to changing market conditions and maintain competitiveness.